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* “Morocco gained 26 places between 1995 and 2012, the most of any of the top 75 countries in our index, reflecting the government’s aggressive efforts to position the economy in both goods and services to serve the large European market.” *

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Huffington Post/World Post, by James Manyika, Susan Lund, Olivia Nottebohm/ McKinsey & Company (May 28, 2014) ― Openness to the global economy has gained many detractors as a result of the 2008 global financial crisis and subsequent recession. People are unnerved by the volatility of capital flows and worried that their jobs may be outsourced. Yet more countries than ever before are playing on a global stage―and benefiting economically as a result. A new report from the McKinsey Global Institute and the McKinsey High Tech Practice finds that five types of global flow―goods, services, finance, people, and data and communication―increase global GDP growth by between $250 billion and $450 billion a year or 15 percent to 25 percent of global GDP growth. And the most connected country will see 40 percent more of that benefit than the least connected country. For example, Thailand, which is highly connected to global flows, will disproportionately benefit compared with its neighbor Laos, which has a low level of connection.

After a pause in the aftermath of the financial crisis, global flows are once again expanding (with the notable exception of financial flows, which remain almost 70 percent below their pre-crisis peak) and accelerating as increasingly prosperous emerging economies become more engaged in cross-border commerce and exchange, enabled by the rapid spread of digital technologies. But the participation of countries varies enormously. To provide a snapshot of this evolving landscape of connections, we developed the McKinsey Global Institute Connectedness Index, which looks at 131 countries across the five main flows in 1995 and 2012. By looking at connectedness to all the major flows―rather than just manufacturing exports―we obtain a truer picture. And, importantly, the MGI index differs from others because it corrects for the size of country. If we don’t do this, a large diversified economy looks relatively closed because flows are a modest share of GDP, and smaller countries’ connectedness is exaggerated because their flows are a higher share of GDP.

The index reveals some surprises. Who knew that South Korea and Japan, the two established Asian manufacturing export powerhouses, overall rank at only 20th and 21st respectively, lower than most of Europe and the United States and even Saudi Arabia, Malaysia and Poland. The reason is that both countries remain relatively closed to immigration and low on cross-border Internet traffic. China, for similar reasons, ranks only 25th on the index. Perhaps surprisingly, the United States is no longer the world’s most connected economy―those laurels go to Germany. Germany ranks first and the United States third with two smaller economies―Hong Kong and Singapore―coming in second and fourth. The index shows that the trade intensity of the United States―the value of flows relative to the size of its economy–is only one-third of the intensity of Germany, and one-half that of China. As emerging markets become increasingly important as both consumers and producers–they now account for 38 percent of global flows, nearly triple their share in 1990―they are climbing up the connectedness rankings. Morocco gained 26 places between 1995 and 2012, the most of any of the top 75 countries in our index, reflecting the government’s aggressive efforts to position the economy in both goods and services to serve the large European market. India gained 16 places in this period, largely reflecting its huge exports of services. Brazil jumped 15 places, reflecting growth in services and financial flows.

[Continue Reading at Huffington Post/World Post…]

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